I am Director of Entitlement and Budget Policy for the Heartland Institute, Senior Advisor for Entitlement Reform and Budget Policy at the National Tax Limitation Foundation, General Counsel for the American Civil Rights Union, and Senior Fellow at the National Center for Policy Analysis. I served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush. I am a graduate of Harvard College and Harvard Law School, and the author most recently of America's Ticking Bankruptcy Bomb (New York: Harper Collins, 2011).
I write about new, cutting edge ideas regarding public policy, particularly concerning economics.

Is President Obama Really A Socialist? Let's Analyze Obamanomics

President Obama says that income taxes must be raised on the rich because they don’t pay their fair share. The indisputable facts from official government sources say otherwise.

The CBO reports based on official IRS data that in 2009 the top 1% of income earners paid 39% of all federal income taxes, three times their share of income at 13%. Yet, the middle 20% of income earners, the true middle class, paid just 2.7% of total federal income taxes on net that year, while earning 15% of income. That means the top 1% paid almost 15 times as much in federal income taxes as the entire middle 20%, even though the middle 20% earned more income.

Moreover, the official data, as reported by CBO and the IRS, show that the bottom 40% of income earners, instead of paying some income taxes to support the federal government, were paid cash by the IRS equal to 10% of federal income taxes as a group on net.

Any normal person would say that such an income tax system is more than fair, or maybe that “the rich” pay more than their fair share. So why does President Obama keep saying that the rich do not pay their fair share? Is he ignorant? Wouldn’t somebody in his Administration whisper to him that he is peddling nonsense?

The answer is that to President Obama this is still not fair because he is a Marxist. To a Marxist, the fact that the top 1% earn more income than the bottom 99% is not fair, no matter how they earn it, fairly or not. So it is not fair unless more is taken from the top 1% until they are left only with what they “need,” as in any true communist system. Paying anything less is not their “fair” share. That is the only logical explanation of President Obama’s rhetoric, and it is 100% consistent with his own published background.

Notice that Obama keeps saying that “the rich,” a crass term implying low class social envy, don’t “need” the Bush tax cuts. That is reminiscent of the fundamental Marxist principle, “From each according to his ability, to each according to his need.”

Good tax policy is not guided by “need.” It is guided by what is needed to establish the incentives to maximize economic growth. The middle class, working people and the poor are benefited far more by economic growth than by redistribution. That is shown by the entire 20th century, where the standard of living of American workers increased by more than 7 times, through sustained, rapid economic growth.

But President Obama’s tax policy of increasing all tax rates on savings and investment will work exactly contrary to such economic growth. It is savings and investment which creates jobs and increases productivity and wages. Under capitalism, capital and labor are complementary, not adversarial, exactly contrary to the misunderstanding of Marxists. More capital investment increases the demand for labor, bidding up wages to the level of worker productivity, which is enhanced by the capital investment.

Increasing marginal tax rates on savings and investment, however, will mean less of it, not more. That will mean fewer jobs, and lower wages, just as we have experienced so far under President Obama, with median household incomes (hello middle class) declining by 7.3% (a month’s worth of wages) during his first term, even faster after the recession supposedly ended in 2009. That will only get worse in Obama’s unearned second term, which can only be explained as “democracy failure” analogous to “market failure.”

If the tax increases are limited to those who earn $1 million or more, I don’t know if that alone will be enough to create a recession, as I am certain would be the result with Obama’s original policy of targeting couples making over $250,000 a year, and singles making over $200,000.

But there is so much in the Obama economic program that is contractionary. His second term promises enormous new regulatory burdens and barriers. The EPA is shutting down the coal industry, and Interior will join with it to sharply constrain oil production further, despite Obama’s duplicitous campaign rhetoric taking credit for the production produced by the policies and efforts of others. I expect Obama’s EPA to burden natural gas fracking until it goes the way of the coal industry as well, stealing new found prosperity for many Americans. All of this will sharply raise energy prices, which will be another effective tax on the economy.

Moreover, President Obama has said that a priority in his second term will be global warming, even though global temperatures have not been increasing for 16 years now, and the developing world led by Brazil, Russia, India and China (the BRIC countries), which are contributing to “greenhouse gases” at a much greater accelerating rate than the U.S., have rejected sacrificing any slice of their economies to that ideological phantom. While even the Democrat Congress of Obama’s first term failed to adopt “cap and trade,” EPA is advancing with global warming regulations that will cost the economy trillions in still another effective tax.

Then there are the onrushing regulatory burdens of Obamacare, including the employer mandate, which will require all businesses with 50 employees or more to buy the most expensive health insurance available. That will be an effective tax on employment. As Obamacare forces up the cost of health insurance, that will be still another effective tax increase on all employers already providing health coverage. Hundreds of regulations still in the pipeline under the “Dodd-Frank” legislation are already forcing the financial sector to contract, and threaten the business and consumer credit essential to full recovery.

In addition, few are adequately considering the longer term contractionary effects of the Fed’s current policy mischief. For years now, businesses and investments have been launched all over the country based on the near zero interest rates, and even below zero real rates, that Fed policies have perpetuated, along with the easy free money . When those rates inevitably rise back to normal, most likely after these Fed policies have resparked inflation, the basis for those businesses and investments will be gone, and many if not most will go into liquidation, which will be highly contractionary as well.

However, I am certain in any event that the Obama tax increases will result in less revenue rather than more. Obama has been proposing to increase the capital gains tax rate by 58% on the nation’s job creators, investors and successful small businesses, counting his Obamacare tax increases that take effect on January 1 as well the expiration of the Bush tax cuts. While his misleading talking points say there will be no tax increases for 97% of small businesses, that counts every Schedule C filed for every part time or hobby sole proprietorship, however marginal the earnings. The small businesses that would bear President Obama’s originally proposed tax increases earn 91% of all small business income, and employ 54% of the total private sector U.S. work force, as reported in Investors Business Daily on November 9.

Over the last 45 years, every time capital gains tax rates have been raised, revenues have fallen, and every time they have been cut, revenues have increased. The capital gains rate was raised 4 times from 1968 to 1975, climbing from 25% to 35%. The 25% rate produced real capital gains revenues in 1968 of $40.6 billion in 2000 dollars. By 1975, at the higher rate, capital gains revenues had plummeted to $19.6 billion in constant 2000 dollars, less than half as much.

After the capital gains rate was cut from 35% to 20% from 1978 to 1981, capital gains revenues had tripled by 1986 compared to 1978. Then the capital gains rate was raised by 40% in 1987 to 28%. By 1991, capital gains revenues had collapsed to $34.4 billion, down from $92.9 billion in 1986, in constant 2000 dollars adjusted for inflation.

Obama’s capital gains tax increase next year will reduce capital gains revenues again as well.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.

Comments

I vote “ignorant”. Only an ignorant person would say he wants to tax the rich more even though he is told that economic history has demonstrated numerous times over the years that raising taxes on ‘the rich’ actually lowers tax revenues collected. He knows (because he’s been told on air), and yet he is still demanding higher taxes on the rich. Only an ignorant person would even think such a think in spite of the facts, much less continue to say it out loud.

I am a financial analyst in the banking industry, and your tax analysis is obviously misleading or just plain dumb. The relevant number for understanding tax burden is ALL TAXES, not income tax alone. The lower income quintiles pay far more in wage tax, sales tax and local tax than higher incomes. Any objective analysis of the burden of taxation — considering all taxes — would show a very significant share of income paid as taxes by lower quintiles, and a declining share of income paid by the wealthiest 1-2%.

Further, to describe Obama as “socialist” is just name calling that serves to divide our country. If Obama is a “socialist,” then Nixon and Reagan were Marxist-Leninists and FDR was a Stalinist. Of course, Bush Jr increased Medicare benefits (without funding it other than with deficits), so he too must be a socialist. Don’t be a blowhard — it discredits you entirely.

So not fair to pick one out of context statement and dismiss the rest as ludicrous. Not everywhere has local taxes, but between local taxes, sales tax, liquid tax, gas tax, tobacco tax, and other non income based taxes, the lower half of society does pay a respectable amount.

If you are indeed a financial analyst, I suspect you would not accept a critique that simply said “you numbers are wrong; just trust me because I have a title”. If you are so confident that your position is correct, please provide credible sources for real numbers.

That said, I am certain you can provide numbers for total taxation that are different than the numbers provided for the author about federal income taxes alone. That will not change the validity of his point for a couple of major reasons:

1 – One of the largest factors in the difference will be Social Security. This was never designed to be financed by a progressive tax but specifically to serve as INSURANCE (note the proper name of the program “Old-Age, Survivors, and Disability INSURANCE and the proper name of the “tax’ Federal INSURANCE CONTRIBUTIONS Act). The caps on benefits correlate to a cap on contributions and the variation between the payments by the rich reflect a longstanding and very sensible policy. In short, you are trying to distort the argument by treating insurance premiums as if they were an income tax.

2) By including state and local taxes, you are also including a widely variable melange of tax laws, some of which are reasonable, some of which are not. In a debate about federal taxation (and its implications about Obama’s positions) you are jut trying to obfuscate by introducing a hodgepodge of unrelated policies, practices, and regulations that were largely never influenced by or even commented on by Obama. There are lots of things that need to be fixed on the state and local levels – that is not what this column is about.

Finally, the author makes a cogent case for defining Obama as a socialist. You respond with an ad hominem attack. Talk about being a blowhard.

The Dishonest Democratic Narrative in action. At the same time Bush passed the Medicare benefits, employment rates climbed out to the Dot.com Bubba Bubble lows to reach near record highs, GNP reached new record highs, DJIA reached new record highs, and the deficit was steadily reduced from 2003 to 2007. Look it up.

So, what happened in 2007? The Democrats’ Unaffordable Housing Bubble crashed, the largest economic bubble in history.

Do Sec 8 voucher recipients pay property taxes? Just one of 100 examples I could cite. Do they make (now huge) co payments to health providers like avg middle class and upper middle class paying 5 to 10k per year for health insurance? No, its all covered.

You’re statement is utter nonsense. Among the working bottom 20% or thereabouts (sometimes higher) the EITC alone returns billions to the “poor” even in cases where there is ZERO federal income taxes paid, thus making it an offset against SS taxes paid – meaning they often pay zero to SS yet will eventually receive full benefits as if SS was was paid each year.

Second, transfer payments are not taxed, the biggest one now being food stamps with nearly 50 million now getting benefits. Normal people earn money, then PAY TAXES, and then buy food. Same with Medicare and soon to be Obamacare for those subsidized, which will by the way include most cash economy types and various other alleged “poor” individuals.

As far as non-working poor (which now also included huge numbers inthe cash economy) none of the WIC money nor 19 other major programs are taxed.

In fact the alleged “income disparity” nonsense often repeated by the MSM 1. does not even include ANY transfer payments – and completely ignores the massive tax hit on the higher end.

Reagan is the closest president to one who tried to uphold the Constitution and allow us to keep more of our own money.

FDR was of course a marxist. To deny it is to deny reality – try reading the Communist Manifesto Section II Proletariats and Communists and see how the Democrat party policies and platforms mirror the Manifesto.

Bush was an idiot for the Medicare Drug plan- at least though it has turned out to be one of the least costly socialist moves = it has only impacted the budget by 1/10 of 1%

Mr. Kyriacou, I do not engage in name calling. The article demonstrates that Obama is a Marxist, the precise word I use. What is your explanation for why Obama keeps saying that the rich do not pay their fair share when the actual data show they pay far more than their fair share? Are you saying he is ignorant, or are you saying he is a liar? Also Obama proposes to raise income tax rates on the “the rich” because they do not pay their fair share, not payroll tax rates. So that is why it is relevant to focus on income taxes. But Larry Robinson below corrects you on all federal taxes as well, where the official numbers are not that different. Maybe if you hire him as a consultant, he could help you improve your business. But thank you for your faithful recitation of the socialist party’s talking points.